2020 CRA Vehicle Allowance Rates!

2020 has been a very challenging year and as we get close to the end of 2020 you may be preparing to file your corporate tax returns.  If you reimburse yourself or your employees for business use of a personal vehicle personal vehicle here are the new are the CRA vehicle allowance rates for 2020. These rates are the maximum tax-exempt allowances that can be paid by employers to employees who use their personal vehicle for business purposes. The new rates for 2020 have been increased by 1 cent to 59 cents per kilometer for the first 5,000 kilometres driven, and 53 cents per kilometer for each additional kilometre above 5000.

Reasonable Per-Kilometre Rates

If you pay your employees a vehicle allowance it is taxable unless it is based on a reasonable per-kilometre rate. The type of vehicle and the driving conditions are considered when determining if an allowance is reasonable. All of the following conditions must be met for an allowance to be considered reasonable:

1. The allowance is based only on the number of business kilometres driven in a year. Flat rate allowances are always taxable.
2. The rate per-kilometre is reasonable.
3. You did not reimburse the employee for expenses related to the same use of the vehicle. This does not apply where there are additional expenses such as toll charges or supplementary business insurance that were not factored into the allowance paid to the employee.

Reporting Taxable Allowances

If the per-kilometre rate that you pay is NOT reasonable the amount becomes taxable to the employee.  If the allowance is taxable, it is also pensionable and insurable so you have to deduct CPP contributions, EI premiums and income tax. For reporting purposes the amount is included in the employee’s “Employment Income” in box 14 of their T4 slip and the amount is reported in “Other Information” under code 40.

Employee Deduction of Vehicle Expenses

If an employee receives a taxable vehicle allowance, the related vehicle expenses may be deductible on their personal tax return. To be eligible to deduct these expenses, the use of the employee’s personal vehicle must be required by their employment contract and the employer must provide them with a completed and signed T2200 Declaration of Conditions of Employment. The employee is responsible to keep records to support their claim.

If you have any questions relating to this post or any other corporate business or tax topics, please feel free to contact us at 403-509-3290 or info@focusllp.ca

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